Written evidence submitted by Cleantech for UK (IGR0101)

About Cleantech for UK

Cleantech for UK is a coalition of company builders and investors spanning the innovation lifecycle from company formation to initial public offering (IPO) and beyond. Our mission is to engage with the government to empower UK cleantech innovators to become homegrown employers, spearheading a global clean industrial revolution. The coalition includes thirteen members with combined funds of over £7 billion.

The coalition members are Imperial College London's cleantech accelerator Undaunted, Clean Growth Fund, Kiko Ventures, Breakthrough Energy Ventures, Just Climate, Legal and General, Green Angel Ventures, Future Planet Capital, 2150, Deep Science Ventures, BGF, Greenbackers and Zero Carbon Capital. The work of the coalition is facilitated by Cleantech for UK.

The initiative is supported by Bill Gates’ Breakthrough Energy and organised by Cleantech Group. Cleantech start-ups are companies focused on developing innovative technologies that address environmental challenges, particularly in the energy and infrastructure sectors and are key players in the transition to a low-carbon economy.

The coalition exists to bridge the gap between these start-ups, investors, and policy makers. As such, Cleantech for UK will be responding on behalf of our coalition to provide principles-based recommendations that we think will enable investment in clean technology and the future of the UK planning system.

Recognising that this particular inquiry is a call for evidence, we have collected feedback directly from our coalition, and supplemented with research from external sources.

1. The government must prioritise clean technologies that can deliver environmental, economic, and social benefits across the UK.
2. Local governments should play a vital role in highlighting and disseminating the wider societal benefits that innovation can deliver.
3. Government Should Improve Resources and Promote flexibility in funding use to allow R&D to happen.
4. Prioritise and endorse Local Area Energy Plans (LAEP)
5. Publish a National Transition Plan, that sits beside local area energy planning.
6. Improve Resources and Promote flexibility in funding use to allow R&D to happen.

In our introduction below, we also outline some of the key principles that our coalition, and portfolio companies believe need to be adhered to, to accelerate clean tech innovation and growth across our regions.

Principle 1: National Level

1. De-risk market entry and leveraging national funding mechanisms for locally driven action. Increasing reliance on strategic investors, particularly those from overseas, for funding First-of-a-Kind (FOAK) projects could have significant implications for regional development of innovation in the UK. As many ground-breaking cleantech projects turn to strategic investors for funding, the pattern of investment is creating a risk of missed opportunities for local economies, especially outside of London and the Southeast. The fact that only 5 out of 26 (19%) strategic investors in UK FOAK projects are UK-based raises concerns about the potential for regional economic disparities[1]. These foreign investors may prioritise the implementation of projects in regions where they already have a strong presence, global reach, or the infrastructure to support new technologies, which could skew the distribution of investments toward areas with established markets or access to international supply chains, leaving some regions underserved.

Strategic investments often come with the added advantage of securing access to new technologies or global markets. However, for regions outside the main investment hubs, this could mean that the long-term benefits of these investments, such as job creation, skills development, and regional economic growth, may not be fully realised[2].

On the flip side, this trend could also present an opportunity if local governments and regional stakeholders proactively seek to engage with these strategic investors. Leveraging already impactful initiative like the National Wealth Fund, should offer tailored incentives, aligning local priorities with the needs of FOAK projects, and creating a favourable investment environment, regions could attract more investment into local cleantech initiatives. For example, targeted investment in regions with natural resources or infrastructure suited to specific technologies, such as offshore wind or green hydrogen, could create local hubs of innovation and attract international strategic investors.

2. Clear national policy guidance through the Industrial Strategy and National Transition plans. Uncertainty in policy direction significantly deters investment in cleantech, as it creates risk and instability for financial and industrial stakeholders. Clear and consistent national strategies, such as an Industrial Strategy and a National Transition Plan, are essential to signal long-term government commitment, enabling investors, innovators, and businesses to plan and invest confidently. These strategies provide a coherent blueprint for decarbonisation, aligning national and regional goals to reduce fragmentation and inefficiencies. For instance, sector-specific roadmaps within a National Transition Plan can help regions focus on their comparative advantages, such as renewable energy, energy storage, or sustainable transport[3].

Evidence from institutional investors highlights that clear policy frameworks reduce perceived risks, making cleantech investments more viable, especially in regions with limited financial capacity. By prioritising untapped potential in areas like the North, Midlands, and devolved nations, a robust Industrial Strategy can address regional disparities in R&D funding and economic opportunity. Additionally, policies such as carbon pricing, tax incentives, and support for public-private partnerships send strong market signals, fostering trust among industry leaders and driving multi-stakeholder collaboration. A clear national vision also positions the UK as a global leader in cleantech, attracting international investment, boosting exports, and building innovation clusters that leverage regional strengths in infrastructure, natural resources, and skilled labour.

Principle 2: Local Level

After speaking with company builders within our coalition, it is clear that cleantech innovation and growth at a regional level will depend on several key factors:

1. Successful innovation hubs thrive in major cities with a critical mass of creative and entrepreneurial talent. For example, while Norwich has achieved local growth, its smaller population and limited pull reduce its potential to emerge as a major innovation hub. Larger cities with diverse and dynamic populations are better positioned to drive meaningful regional innovation.
2. Geographical connectivity plays a crucial role in fostering innovation. Regions need strong links to innovation centres and infrastructure to support growth. Cities such as Birmingham, Bristol, Leeds, and Glasgow provide the hinterlands and transport networks necessary to sustain vibrant ecosystems. In contrast, coastal cities and less centralised regions, like Liverpool and Manchester, may face challenges in achieving the same scale of impact due to limited connectivity and accessibility.
3. A final critical factor is the presence of strong knowledge and research institutions. Cleantech innovation is distinct in that it operates within the boundary conditions of climate science. To be effective, it requires access to expertise in climate science, systems engineering, and lifecycle analysis tools. Institutions that can provide this knowledge and connect it to value chain expertise are essential to fostering sustainable and impactful innovation.

1. How does the Government drive research and innovation in our regions?

1.1 How effective are the government’s policies in supporting the innovation ecosystem across the UK’s nations and regions, particularly through commercialisation initiatives?

There have been notable inconsistencies in the government’s approach to supporting innovation, likely influenced by the election cycle. Anecdotal feedback suggests that Innovate UK grant funding and communication were particularly poor during the election period and the early stages of this new government. This has at worst, undermined confidence in the government’s commitment to the innovation landscape, particularly for clean technologies. Moreover, much of the attention has been directed towards developing technologies that will benefit established incumbents operating at the interface between fossil fuel extraction and other large-scale technologies like carbon capture and storage (CCS) and sustainable aviation fuel, which risks side lining more transformative clean technologies.

Despite these challenges, programs such as Innovate UK and the Catapult Centres have demonstrated value by bridging the gap between academia and industry and supporting commercialisation pathways. Similarly, the Industrial Strategy Challenge Fund, with its focus on clean growth, was well-received by innovators, and there is strong support for similar initiatives. However, systemic issues persist, including a lack of alignment between UK-wide initiatives. Portfolio companies frequently highlight fragmentation and coordination gaps, which have led to duplicated efforts and missed opportunities.

Additionally, R&D funding remains disproportionately concentrated in the Southeast and London, leaving regions such as the North and the devolved nations underfunded and unable to unlock their full potential[4]. This imbalance highlights a missed opportunity to support cleantech innovation across the UK’s regions.

It is also not yet clear that the government fully recognises the economic potential of cleantech innovation. Globally, the cleantech market was valued at $5.5 trillion last year and is projected to grow to $7.4 trillion by 2030[5]. This demonstrates the immense opportunities available for cleantech startups and underscores the importance of climate-focused investments in the global economy.

The UK must seize this opportunity by increasing investment in its cleantech companies and addressing barriers to investment. Empowering cleantech startups will be critical to long-term economic success, and providing clear national policy signals will drive regional innovation in these transformative technologies. A logical starting point would be the Industrial Strategy Green Paper, which, while welcomed, requires the government to urgently clarify its strategic direction and prioritise the industries it aims to lead in the global industrial transition.

Given the evidence, we strongly encourage the government to prioritise clean technologies that can deliver environmental, economic, and social benefits across the UK[6]. Doing so will not only bolster regional growth but also position the UK as a leader in the global cleantech economy.

1.2 How should devolution be harnessed to support innovation across the regions and nations, and what role should local government play in supporting research and development?

Local governments should play a vital role in highlighting and disseminating the wider societal benefits that innovation can deliver. Local regeneration and growth are crucial for economic and social development, but financial markets often fail to recognise the broader social returns of innovation[7]. While many firms can secure the finance they need, market failures persist, particularly in the supply of debt and equity finance to certain types of businesses, such as start-ups and small and medium-sized enterprises (SMEs). These failures result in some potentially viable firms being unable to access funding, which can hinder broader economic growth. The primary cause of these market failures is imperfect or asymmetric information. When future profitability is difficult to predict, even well-informed lenders may struggle to distinguish between high-quality and low-quality projects. We need to make it easier for investors to take calculated risks. Furthermore, financial markets tend to prioritise projects with the highest private returns, often overlooking those with significant positive spillover effects—such as job creation or environmental benefits—that contribute to societal well-being.

Improve Resources and Promote flexibility in funding use to allow R&D to happen. Central government should empower local governments by granting them greater flexibility to allocate national or regional funding streams to priorities specific to their regions. This would enable local governments to unlock R&D efforts focused on addressing issues that matter most at a local level, encouraging innovation tailored to the unique challenges and opportunities of each region. By fostering a bottom-up approach to research and development, this strategy would help unlock untapped growth potential across the UK.

However, this flexibility must be paired with a commitment to improving resources at the local level. Currently, there is a perceived lack of capacity within many local governments to adequately support national goals, such as achieving net zero by 2050[8]. Without targeted resource investment, local governments may struggle to prioritise cleantech innovations, even though they are critical to the UK's decarbonisation efforts and future economic growth. To address this, central government should provide enhanced training, funding, and tools to local authorities, ensuring they have the expertise and infrastructure necessary to identify and support innovative solutions. Building local capacity will enable governments to actively champion cleantech innovations, integrate them into regional plans, and contribute meaningfully to the national net zero agenda.

Prioritise and endorse Local Area Energy Plans (LAEP). A key part of innovation in the regions should be through place-based decarbonisation planning. To do this, LAEP can provide integrated guidance on how whole energy systems pathways and delivery plans for net zero, can be led through local governments. Ultimately these plans can (and have demonstrated[9]) to help create better clarity around investible local transition plans. The investment community is also on board with LAEP and larger institutional investors have been calling for greater private sector investment across regions to deliver net zero[10]. By endorsing LAEP guidance, the government can materially help to unlock the private sector investment needed to keep the UK’s net zero transition on track. The impact of endorsing LAEPs on innovation would be threefold:

1. Creating Demand for New Clean Technologies: LAEPs will drive the development of innovative solutions, such as long-duration energy storage and advanced grid management systems.
2. Reducing Investor Uncertainty: By improving confidence in local market conditions, LAEPs will encourage greater private-sector participation.
3. Fostering Regional Collaboration: Local governments will be empowered to collaborate with businesses, academic institutions, and communities to develop tailored, place-based solutions.

Publish a National Transition Plan, that sits beside local area energy planning. Alongside LAEPs, the government should publish a comprehensive National Transition Plan (NTP) to provide clear, coordinated policy direction for achieving net zero and growth in the regions. Such a plan would send strong market signals and reduce uncertainty, enabling companies and capital providers to invest confidently in the transition.

The NTP should include sector-specific roadmaps, prioritising the most carbon-intensive industries where the UK can enhance its international competitiveness. These sectors include energy production and distribution, transport, the built environment, and industrial processes. Each roadmap must leverage the full range of government tools, including pricing, regulation, and targeted support, to drive systemic change.

A strong starting point would be a sector roadmap for the power industry, focusing on achieving the Clean Power 2030 target. Guidance from organisations such as the National Energy System Operator can be utilised to ensure robust and actionable plans[11]. By pairing a National Transition Plan with LAEPs, the UK government can create a cohesive strategy that integrates national and regional approaches, enabling innovation to flourish while aligning the country's decarbonisation efforts with broader economic and social goals. This integrated approach would provide a pathway for clean technologies to deliver significant environmental, economic, and social benefits across all regions and nations of the UK.

1.3 How do factors such as the tax system, regulatory frameworks and standards influence the success of start-ups, spin-outs, and other innovation-driven businesses?

Promoting a balanced tax policy that supports cleantech innovation while ensuring fairness across the economy, so all stakeholders, including investors, contribute equitably to sustainable growth. Tax, regulatory frameworks and standards, all influence the success of start-ups and spin outs, but often the perception is skewed. For instance, Capital Gains Tax is not a primary driver of investment decisions, instead entrepreneurs and investors prioritise factors such as access to financing, market opportunities, and broader economic conditions[12]. As highlighted in our First of a Kind (FOAK) report, these elements play a much larger role in fostering entrepreneurship and innovation. The government should focus on implementing targeted policies—of which there are at least 32 proven approaches—that more effectively support entrepreneurship, innovation, and business investment. Additionally, the government’s role in creating a strong foundation for business success through a healthy and well-educated workforce cannot be understated. We recommend that the government adopt a balanced tax policy that encourages cleantech innovation while ensuring fairness across the wider economy. This approach will not only strengthen the UK economy but also ensure that all stakeholders, including investors, contribute their fair share to fostering sustainable growth and innovation.

UK R&D tax credits were successful in generating R&D spending which would have otherwise not been carried out[13]. Tax credits for research and development (R&D) and other innovation activities (e.g., the UK’s R&D Tax Relief or Patent Box) can significantly reduce operational costs, enabling businesses to invest more in scaling and development. In response to a one percent drop in the tax price of R&D, we find that UK companies increased their qualifying R&D spending by about two percent. We also find that the early announcement of the policy changes affects companies’ strategies in shifting R&D spending to later periods when such spending becomes cheaper, but our results about the additional effect of the policy hold even when such strategic timing effects are taken into consideration.

1.4 What challenges do innovation-focused researchers and businesses face in spinning-out or scaling-up, such as accessing venture capital, infrastructure and intellectual property rights?

An analysis of 1,118 spinouts that secured equity investment highlights that better-funded spinouts tend to have higher survival rates, suggesting that access to funding can improve their chances of success[14]. However, it’s difficult to determine whether this is directly due to having more resources or the qualities associated with successful funding, such as strong intellectual property, skilled teams, and effective leadership.

Additional research from the Academy and Beauhurst reveals a link between the equity share held by universities and spinout performance. Larger university stakes are more often associated with failed spinouts, possibly because investors may hesitate to back companies where founders have limited financial incentives due to high university equity. While causation remains unclear, this dynamic can influence investment decisions.

The UK government's Independent Review of University Spin-out Companies (November 2023) recommends expanding targeted support for founders to enhance spinout success. Key suggestions include offering training in entrepreneurship and commercialization, providing resources for business development, and ensuring access to professional service advisors.

2. How does research and innovation in our regions drive growth and prosperity in those regions?

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2.1 How effective are regional innovation hubs and clusters in supporting regional growth and prosperity for local communities?

Anecdotally, when set up under the principles outlined in our introduction, innovation hubs and clusters are extremely effective as driving regional growth and prosperity.

2.2 How regional Cluster growth can best be measured, mapped, and monitored to help inform local leadership and evidence-based policymaking in Whitehall.

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2.3 Would unlocking investment at scale for innovative science and technology companies support regional growth, and how could this be done?

Yes, region-specific innovation and growth policies could be achieved by de-risking market entry and leveraging national funding mechanisms to support locally driven action. This approach would empower regional actors to tailor solutions to their unique strengths and challenges, fostering innovation and economic growth.

In addition, providing clarity on the Industrial Strategy and positioning cleantech as a central pillar of its purpose would establish a clear direction for investment and innovation. By integrating cleantech into the broader industrial agenda, the government can ensure it becomes a key driver of both regional and national growth while addressing pressing decarbonization goals.

2.4   Should there be region-specific innovation and growth policies, and what should local government’s role be in this?

Yes, region-specific innovation and growth policies are essential. Regional decisions around innovation should be embedded into broader economic goals, recognising that early-stage companies and innovators based in the regions can play a pivotal role in advancing decarbonisation efforts and driving local economic development.

A cluster-based innovation policy that fosters the assembly of regional innovation hubs is critical. These hubs should have strong connections to other regions, creating a cohesive national innovation network. Local governments have a vital role in ensuring these hubs are tailored to regional strengths while also contributing to national economic and environmental goals. Policymakers in Whitehall must rely on local actors to translate high-level strategies into actionable plans that align with local economic contexts and opportunities.

Work by institutions such as Imperial College and Undaunted provides a blueprint for how such a framework can be developed and implemented effectively.

3. How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?

3.1 What more can be done to ensure that innovation investments deliver tangible outcomes for both local and national economies, in terms of productivity and growth, and how should this be assessed?

Current Productivity Picture

Since the global financial crisis, the UK's output per hour worked has risen by just 0.7% annually on average, a significant decline from the 2.1% growth rate seen in the 14 years prior to the crisis[15]. This stagnation in productivity growth poses a challenge to the UK's overall economic performance and undermines its competitiveness on the global stage.

What Can Be Done to Improve This:

1. Encouraging Collaboration Between Government, Academia, and Industry:
   Ensuring that innovation investments are aligned with market needs and regional strengths is essential for driving productivity. By fostering closer collaboration between government, academia, and industry, we can better leverage regional advantages and accelerate innovation that addresses specific local challenges. Cleantech for UK plays a pivotal role in facilitating this collaboration through our investment coalition, connections with innovators, and strong government ties.
2. Expanding the Role of Catapults. Catapults, which provide infrastructure for cross-sector collaboration, are instrumental in translating innovative ideas into practical applications. Expanding the capacity of these centres of excellence would further stimulate collaboration and accelerate the translation of R&D into scalable solutions. A stronger network of catapults can help facilitate the creation of new industries, particularly in emerging sectors such as clean technology and advanced manufacturing.
3. Private-Public Partnerships for Scaling Innovation. Overcoming barriers to scaling requires a more robust model of private-public partnerships (PPPs). These partnerships enable innovators to access not only funding but also the tools, infrastructure, and expertise necessary to grow and succeed. By integrating these resources into the innovation ecosystem, we can bridge the gap between early-stage research and commercial success, driving productivity growth.
4. Securing Investment for First-of-a-Kind (FOAK) Projects. A critical issue facing the UK's cleantech sector is the overreliance on foreign strategic investors for funding FOAK projects. While international collaboration is important, securing domestic funding for FOAK projects is vital to prevent the loss of intellectual property and technology to foreign markets. As seen with the offshore wind sector, where the UK successfully deployed technology but failed to establish a domestic manufacturing base, the benefits of innovation can be diluted if the supply chains are not developed locally. To address this, the UK must balance international collaboration with the cultivation of key domestic capabilities to ensure the long-term economic benefits of cleantech innovations.
5. Increasing Support for Commercialisation and Scale-Up. Innovation must go beyond R&D to ensure it is effectively commercialised and scaled up. Financial mechanisms such as venture capital, public-private partnerships, and innovation loans are essential for removing the barriers to scaling. These mechanisms provide businesses with the resources they need to grow, which is a crucial factor in improving productivity. Ensuring access to the right tools and expertise will enable businesses to take their innovations from prototype to market, contributing to sustainable economic growth.
6. Focusing on Workforce Skills Development. As the cleantech and advanced manufacturing sectors evolve, investing in skills development is essential to ensure that the workforce can adapt to new technologies. Governments and businesses should prioritise training and upskilling programs to help workers transition into new roles, particularly in sectors like clean technology. A highly skilled workforce will not only increase productivity but also ensure the UK is competitive in the global marketplace.
7. Encouraging Long-Term, Sustainable Investment. To drive sustained productivity growth, innovation investments must be part of a long-term strategy. Fostering a culture of innovation that encourages green technologies, digital advancements, and sustainable practices will lay the foundation for future economic growth. Clear regulatory frameworks and government incentives, such as carbon pricing or tax incentives for clean technologies, can provide the long-term signals investors need to direct capital into high-impact sectors that will drive growth, increase productivity, and contribute to the UK's net zero transition.

In summary, a comprehensive approach that includes fostering collaboration, expanding infrastructure for innovation, securing investment for FOAK projects, and investing in workforce skills and sustainable long-term strategies will be key to boosting productivity and driving the UK's economic growth. These efforts will be crucial to transforming the UK's innovation landscape and achieving long-term economic success.

3.2 To what extent do Catapults support technology diffusion, and drive both national and regional growth?

Catapults play a crucial role in supporting technology diffusion and driving both national and regional growth in the UK. For clean technologies in particular, bridging the gap between research and commercialisation, Catapults help these businesses scale much quicker than they would have otherwise been able to[16]. Through access to specialised facilities, expertise, and industry connections, they support the development of high-tech sectors like energy, digital, and manufacturing. This not only enhances national competitiveness but also attracts both public and private investment, stimulating economic growth and job creation across the country.

Regionally, Catapults foster local innovation ecosystems by providing SMEs with the resources, knowledge, and technologies they need to grow. They collaborate closely with local authorities, universities, and businesses to create tailored strategies that drive regional economic development. By promoting sector-specific growth and supporting the formation of innovation clusters, Catapults help diversify regional economies and improve business productivity. This localised approach ensures that the benefits of emerging technologies are felt beyond the major cities, supporting sustainable development across the UK.

3.3 How well are universities and businesses coordinating efforts to develop and commercialise research, including the role of spinouts and collaborative R&D projects?

The University of Oxford remains the leading institution in terms of spinout creation, with its number of spinouts increasing from 205 to 210 over the last year. However, this increase is relatively modest compared to last year, which saw 12 new additions. The University of Cambridge continues to hold the second spot, with its total spinouts count increasing from 145 to 149. Imperial College London has experienced the most significant growth in spinout numbers, with a 14.8% increase, raising its total from 108 to 124.

Cleantech encompasses firms focused on clean energy, efficiency tech, and other clean technology. There were 162 spinouts from cleantech through 2023 to Q1 2024[17]. Compared to last year’s 150, January 2024 saw an 8.00% rise in spinouts, indicating a deceleration from the previous year’s 17.2% growth[18]. This slowdown might be due to tougher funding conditions, especially for capital-intensive cleantech hardware projects.

In addition, the Committee welcomes submissions on the following points:

3.4 What is the relationship between investment in innovation and economic growth, both regionally and nationally?

The relationship between investment in innovation and economic growth is well-established, with a strong positive correlation at both regional and national levels:

National Level
 

Investing in innovation positions the UK to compete in global markets, attract foreign direct investment (FDI), and export high-value goods and services. A strong example is the emerging carbon capture and storage (CCS) industry, which has benefitted from both government financial support (e.g., the Industrial Energy Transformation Fund, or IETF) and a favourable regulatory environment[19]. This demonstrates how leveraging regional strengths through coordinated policy can drive economic benefits nationally, fostering trade surpluses and strengthening the economy. Simultaneously, such initiatives deliver local advantages, such as creating clean, high-quality jobs.

Innovation investment also diversifies industries, reducing reliance on traditional sectors. This diversification is critical not only for addressing climate change but also for enhancing resilience and driving growth in finance, technology, and transport.

Regional Level
 

Locally, innovation hubs stimulate regional economies by strengthening supply chains, increasing customer spending, and generating higher tax revenues. For example, the Cambridge and Oxford innovation districts have thrived due to significant funding for their hubs, universities, and facilities. The Cambridge and Peterborough Hub[20], supported by the Adopting Innovation programme, has coordinated over £1 million of investment by facilitating innovation bids.

Cleantech for UK has observed first-hand the positive impacts of such hubs on portfolio companies, which benefit from enhanced access to networks, resources, and funding opportunities. These models are effective and should be replicated across the UK to drive regional and national growth.

3.5 Is the £20.4 billion research and development budget delivering value for money and economic growth, and what metrics should be used to evaluate its effectiveness?

The UK’s £20.4 billion research and development (R&D) budget represents a significant investment in innovation but, there is a marked lack of support for the innovations as they scale-up to commercial deployment. This issue is shared amongst other start up innovations across the economy. There is huge opportunity for the UK to lead on helping climate startups to scale, which will also create more jobs and prosperity.

Evidence from leading universities such as Imperial, Leeds, Exeter, Derby, Cranfield, Nottingham, and others highlights significant challenges for first-time founders during the scaling phase of venture development. Organisations like the High Value Manufacturing Catapult, Deep Science Ventures, Viridis Capital, Just Climate, Cambridge Cleantech, and Cleantech for UK identify this phase as particularly critical for companies that have reached Technology Readiness Level (TRL) 5 or 6 and secured initial funding of £500k to £3m. However, these ventures often face substantial hurdles in raising Series A investments (£5m+) and advancing to TRL 9. Insufficient technical knowhow in industrialisation processes to progress innovations at scale

• Underdeveloped manufacturing, supply chain and commercial readiness levels in the UK
• Lack of patient capital and risk appetite in the UK
• Difficulties in accessing equipment and spaces for technical and production development and testing
• Securing demonstration and deployment opportunities with first customers
• Attracting and retaining diverse talent – especially for female and minority founders
• Navigating industry-specific regulation and certification
• Developing and protecting research-based IP outside of the university setting

The UK’s early-stage investor community often lacks the technical expertise and capacity to address these barriers effectively. The Climate Scaling Collaborative seeks to bridge this gap in partnership with like-minded universities and organisations. Focusing on IP-rich university startups and spinouts, the project will support ventures offering deep technology-based climate solutions, spanning hardware, software, and hybrid innovations for climate mitigation and adaptation across diverse industries.

During the initial RED Fund period, the initiative aims to support 60 IP-rich climate startups emerging from the UK’s higher education ecosystem, with engagement extending to an additional 120 businesses through founder networking events[21]. Each regional partner will host events showcasing prototyping and manufacturing facilities, fostering collaborations with local investors, policy groups, and businesses. By addressing these critical challenges, the Climate Scaling Collaborative will drive the growth of climate-focused startups and strengthen the UK’s position as a leader in cleantech innovation.

3.6 How are funding bodies such as UKRI and ARIA contributing to the UK’s innovation ecosystem and delivering the government’s growth missions?

The UK’s innovation landscape has evolved over decades, shaped by diverse public and private actors, creating challenges such as policy churn, blurred remits, and competing objectives. Despite these complexities, UKRI and ARIA remain vital pillars of the innovation ecosystem. UKRI focuses on scaling established innovations, while ARIA targets transformative, high-risk projects, collectively driving the government’s growth missions through strategic investments in research, technology, and regional development. Together, they provide an end-to-end approach critical for financing cleantech transitions, supporting both early-stage innovations and established enterprises.

Intermediaries, such as Catapults, play a crucial role in fostering innovation by driving product and process development, improving business performance, and enhancing collaboration. While their impacts are diverse and challenging to quantify solely in economic terms, they yield significant system-wide benefits. Expanding the evidence base is essential to fully understand their contributions to regional growth.

Grants and subsidies have proven effective in stimulating R&D investment, particularly among SMEs. These mechanisms drive innovation, product development, market expansion, and firm growth, with collaborative R&D grants promoting partnerships, intellectual property generation, and economic spillovers. However, long-term stability and thoughtful design are critical to maximising their impact. The impact of tax incentives, such as the UK R&D Tax Credit, is mixed. While positive effects on R&D spending, especially for small firms, have been observed, questions remain about their additionality and effectiveness in driving economic growth. This warrants further investigation.

Evidence on the effectiveness of business support for innovation is similarly inconclusive, with significant variability in outcomes across programs. Technical advisory services can deliver benefits, but their success often depends on the intensity and focus of the support provided. Clearer evidence is needed to link business support directly to innovation outcomes and economic growth. Standards also play an important role by creating cohesion, leveling the playing field, and providing framework conditions for innovation. However, challenges such as knowledge leakage, firm-specific influence, and sectoral disparities can limit their effectiveness. More research is needed to understand how standards impact different sectors and firms.

In summary, while research and innovation levers vary in their effectiveness, they are critical to fostering regional growth. Strengthening the evidence base, ensuring the stability and thoughtful design of interventions, and addressing gaps in understanding will be key to maximising their impact.

3.7 How does the UK’s innovation ecosystem compare to those of other countries, and what lessons can the UK learn from international models in terms of commercialising research and innovation to benefit both regional and national economies?

The UK contributes significantly, but it is not among the top five economies dominating the R&D landscape[22]. While the UK is known for its government-led R&D initiatives, its gross expenditure on R&D as a percentage of GDP lags behind global leaders like South Korea, China, and the United States. This indicates that while the UK maintains strong innovation frameworks and initiatives, it has the potential to further expand its R&D investments to compete more effectively on the global stage. The rapid R&D growth seen in countries like China highlights the importance of sustained and strategic investment to drive innovation, commercialisation, and economic growth. For the UK, increasing R&D spending could enhance its global competitiveness, improve technology development, and support regional and national economic objectives.

What does the rest of the world look like on R&D and Innovation performance?[23] The global expenditure on research and development (R&D) reached $2.6 trillion in 2021, measured in U.S. current purchasing power parity (PPP) dollars. This figure includes all 37 OECD member countries and 7 additional economies (Argentina, China, Romania, Russia, Singapore, South Africa, and Taiwan). For comparison, global R&D expenditure in 2018 was $2.1 trillion, reflecting a compound annual growth rate (CAGR) of 7.8% between 2018 and 2021.

The distribution of R&D expenditure highlights the dominance of certain economies: the top five R&D performers (United States, China, Japan, Germany, and South Korea) accounted for 73% of global expenditure, the top 10 for 85%, and the top 20 for 93%. The European Union collectively contributed 18% of global R&D spending in 2021.

China’s growth in R&D spending has been remarkable, with a CAGR of 20.5% between 2000 and 2010 and 11.0% from 2010 to 2021, consistently outpacing its GDP growth over the same periods. In comparison, the United States saw its R&D spending grow at a CAGR of 4.3% from 2000 to 2010 and 6.4% from 2010 to 2021, exceeding its GDP growth rates of 3.9% and 4.1%, respectively.

Lesson 1: Financing first-of-a-kind (FOAK) projects is vital for strengthening the UK’s global R&D and innovation competitiveness[24]. By de-risking unproven technologies, FOAK financing builds investor confidence and attracts private capital. It accelerates the commercialisation of cutting-edge innovations, turning prototypes into market-ready solutions that benefit both the economy and society. Additionally, FOAK projects stimulate local economies by creating jobs and fostering innovation hubs, while positioning the UK as a global leader in industries like cleantech. This approach catalyses long-term system change, supporting net-zero goals and bolstering the UK’s economic resilience, making it a magnet for foreign investment and trade opportunities.

27 January 2025